Two significant trends are coinciding in the realm of data center investments within Latin America: the expansion of the colocation market and the initiation of new data center construction. These trends are driven by the escalating digitization of the region's economies and the increasing need for cloud services to bolster the process of digital transformation.
This development is entirely in line with a worldwide pattern. In 2020, global Internet bandwidth increased by 34%, while in 2021 the figure was 29%, according to a report by Telegeography. Latin America was the region with the lowest bandwidth growth between 2017 and 2021, coming in around 35% compound annual growth.
As digitization increases, the demand for data processing capacity will also increase. In this scenario, what is more viable for companies, building new data centers or leasing spaces? The answer to these questions depends on the type of company, its core business, its size and its role in the digital transformation of the region.
The Dual Vision of Hyperscales
The findings from a Report Linker study underscore the influential role of cloud service giants like Microsoft, Google, Amazon Web Services (AWS), Oracle, IBM, and Tencent in propelling the demand for colocation services within the region. The study also highlights that the surge in data bandwidth and the growing need for high-performance computing are compelling data center operators to invest in efficient infrastructure to effectively handle potential downtime.
The contribution of these hyperscale cloud service providers is one of the contributors to the projected compound annual growth rate (CAGR) of the colocation market in Latin America of 6,15% between 2022 and 2027. The other triggers are the growing digitization in most countries and the growth of connectivity, according to Report Linker.
These big players have announced throughout 2021 and 2022 the development of ambitious data center construction projects in the region, such as the Data Center Region of Microsoft in Queretaro, Mexico; new cloud infrastructure zones AWS in Argentina, Chile and Colombia; the investments of Google in submarine cables, new regions for Google Cloud and the expansion of its data center in Chile; and the installation of IBM Cloud Multizone Region in Brazil.
The Choice for the Enterprise Industry
As noted above, the answer to whether to build new data centers or lease them has a lot to do with the type of company, its core business, and its role in digital transformation.
When the company's core business is not offering storage and data processing services, or cloud solutions, the option of leasing space in a colocation facility may be more financially viable. This is because colos offer standardized infrastructure design, clear topologies, faster deployment, vendor management, and high-security standards, giving companies greater cost viability.
A survey conducted by Vertiv to 226 managers of enterprise data centers in industries such as financial services, education, manufacturing, health, government and telecommunications in the United States showed that 57% of those consulted planned to increase the use of colocation in the following 24 months. The reasons that motivated their decision were that colos provide the flexibility to act quickly and at a low cost, the possibility of taking advantage of constant improvements in the industry and the centralization of access to networks in the cloud.
These colos play a role in the Latin American technology ecosystem by providing a flexible and scalable infrastructure solution to companies of different sizes and sectors. For example, at Vertiv we have found that even large data center builders in Latin America are also leasing space in colo data centers while they work on their own construction projects. This has allowed colos to take advantage of the opportunity to provide an additional service to these large data center builders, demonstrating the flexibility and scalability colos offer to their clients.
To learn more about Vertiv solutions to maximize efficiencies in colocation and cloud data centers, click here.
